Tsogo Sun Holdings (TSH), already the largest hotel and casino operator in South Africa, is set to make major inroads into the market by upping its casino investments.

The gaming and hotels group is making a substantial long-term bet by looking past the prevailing dour trading environment and committing more than R5bn of investment to bolster its casino presence over the medium term.

The spend is substantial, representing 17% of Tsogo Sun’s market capitalisation — and speaks volumes for directors’ confidence in its cash- generative abilities, even under stressful trading in both the hotel and casino sectors.

It comes as the Department of Trade and Industry is proposing that all forms of online gambling and other new forms of gambling, such as dog racing, be prohibited.

The department is also proposing that the number of electronic bingo terminals allowed nationally be restricted. However, it does not look as if Tsogo will be affected.

Speaking yesterday after the release of interim results to end-September, Tsogo CEO Marcel von Aulock said casino and hotel customers were under enormous pressure — as witnessed by the company’s net gaming win creeping up 2% to R3.4bn and net room revenues only increasing 6% to R1.1bn.

Aside from committing to the substantial new investments, directors also underlined their confidence in Tsogo’s long-term prospects by pegging the interim dividend at 29c a share.

“Our machine is still sound and generating cash. So we are happy to spend on our structures knowing that when trading conditions turn, they will turn strongly. We just hope we are not miles away from that turn,” Mr von Aulock said.

The substantial investment commitment comes after Tsogo allocated capital of R4.7bn during the interim period to acquiring five SA-based hotel assets, taking a 25% interest in leading, UK-based hotel management company Redefine BDL and expanding the Emnotweni, Silverstar and Gold Reef casinos and the Southern Sun in Maputo.

Mr von Aulock said the main components of the future investment strategy were an upgrade to its flagship SunCoast casino in Durban, Gold Reef casino and R2.2bn required to buy 40% of gaming company SunWest.

Source: SA Commercial Prop News – I-Net Bridge